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If you really think you aren't "drowning", stop using all the credit cards and see what happens. I suspect you'll have a rude awakening. You wouldn't be relying on them so heavily if your finances were fine.
You said yourself that your money "comes in batches". Not exactly what any lender wants to hear. If you aren't able to lay any of that sporadic income aside in preparation for the next lean spell, you are barely treading water.
Pay off the cards and stop relying on them. Then re-assess how much house you can afford.
This.
And 300-400k on 50k? Hell nah.
* I see wife = +$45k- still no with bad credit & debt.
I agree with u on the credit card usage however I will say most of it is my wife’s and most of that was there before I came into the picture. My income isn’t sporadic though. Just so happened I sold off some aspects of my business and I’m getting a lump sum of cash and doing it again in April. I’ll still net about 1800-2k a week (just don’t show it all on my taxes). That is where these amounts come from. Definitely a one time thing
But current debt is current debt, unless each of you manages your financial life separately. Use your windfall and pay it off.
A mortgage lender will want to see your regularly-occurring income, what you can repay every single month year in and year out, not these windfalls.
If and when you get a windfall and if your debts are all paid up, put the balance in savings for the next car, the next water heater, roof, medical bill, toward the principal on an existing mortgage, or to make a better down payment on the next affordable house. Put it to work for you...get some interest or dividends from it.
So don’t even pre-qualify? Pay off the debt, save, then try pre-qualify after some time has passed? I guess I was thinking if I go to a lender now they can say pay this or that, which I can and would do why wait is the question?
Pre-qualify for a loan you might take out four years in the future? Why?
Live in the house you've got. Get your debt to earning picture under control (like, for your income level you probably ought to have zero ongoing balances on any credit cards and maybe charge $1000/month all of which you pay off every month, something like that, and no car loans).
Get two kids out of the house, then decide whether you still want to buy a different house (hint: with two kids out of the house, and college tuitions, you'll probably need to decide "no"). At that time, if applicable, apply for loans.
I appreciate the honesty. Not really drowning financially. What I show on my taxes was just enough to qualify for said house. I actually make way more than that. Let me ask you though, besides interest rates why pay off the credit cards first? I assumed it’d be better to pay off the loans first and get them out the way?
First, if it doesn't show on your taxes, where exactly is that money? We've been self-employed for decades. If you're using that money for personal expenses, it needs to be on your taxes. Making $1800-2000/week and not showing it on your taxes is FRAUD.
Debt is debt. A lender won't distinguish between one type of long term debt versus another.
With that income, debt level and low credit scores I suspect you won't qualify for a loan of that amount. I think even with no debt you would be pushing the limits given the spending habits in your household.
Figure out what the mortgage and tax amount would be today on a $350,000 loan. Start paying "yourself" that amount every month. First use it for your mortgage and use the rest of that amount to pay off the credit card and other debts. For example let's say your current mortgage and taxes are $1000/month. A new mortgage and taxes would be $2000/month. Use the extra $1000/month to pay down your debt. Start with the highest interest credit card or loan. Do this for at least 6 months. Find out if your family can do that before you commit yourself to a mortgage that seems unrealistic to me.
Your scores won't go up overnight btw. I also have to ask why you need a house that is worth more than double your current home value to get enough space? Would not a $200,000 or $250,000 work or is it another instance of maxing out your credit? You can use the equity and some of the money as a down payment.
I don't know the source of this $25-40,000, but you likely will owe taxes on that money also. Be prepared to pay them.
Final piece of advice--don't cancel the credit cards, but put them on ice so they aren't used. Literally, put them in a plastic bag, put the bag in a bowl of water and freeze them. Maxing them out isn't funny.
Pay off debt. Get your credit scores up. Then list your current house, and do a simultaneous close on the sale and purchase of a bigger house, so you have your down payment. On a $400k loan, you're going to be paying a crap-ton of additional interest because of your credit scores. As it is, you can't even qualify for a conventional loan because your wife's credit scores are too low. It would have to be FHA, which carries mortgage insurance for the life of the loan.
Personally, I don't think you will qualify for as much as you think you will, and I don't recommend going from a $155k house to a $400k house anyway. You'd be house poor, especially if you have a habit of maxing out credit cards. I know this isn't what you want to hear, but adding that much debt WITHOUT paying off your credit cards is a terrible idea. Resist the temptation to do things NOW. Be smart and pay down your debt first, and put yourself in a good position to buy a bigger house. You'll thank yourself later.
If you're really gung ho to feel like you've started on a plan, go meet with a loan officer or mortgage broker and ask for advice. Come up with a long-term plan. It shouldn't take more than a couple of months to get your credit in order and be better prepared.
I appreciate the honesty. Not really drowning financially. What I show on my taxes was just enough to qualify for said house. I actually make way more than that. Let me ask you though, besides interest rates why pay off the credit cards first? I assumed it’d be better to pay off the loans first and get them out the way?
Please explain. Do you have tax exempt income, or did you understate your income? If you understated your income, then you face enormous potential tax debt (even assuming you don't face criminal charges). You need to calculate this tax debt and get it all paid off first before you even think about buying a house. And probably you should pay off the credit cards too.
Please explain. Do you have tax exempt income, or did you understate your income? If you understated your income, then you face enormous potential tax debt (even assuming you don't face criminal charges). You need to calculate this tax debt and get it all paid off first before you even think about buying a house. And probably you should pay off the credit cards too.
I would assume he just used all the available write-offs. Not uncommon, and it sounds like he understands that it will affect his income calculation for loan purposes. A lot of self-employed borrowers don't understand that, and are surprised when they aren't able to qualify for a mortgage because of what their income looks like on paper.
Let me ask you though, besides interest rates why pay off the credit cards first? I assumed it’d be better to pay off the loans first and get them out the way?
Use this amortization calculator to see just how much those debts are costing you.
$10,000 credit card balance. 18% interest. Minimum payment $200. It will take you 93 months to pay it off. You will pay $8,610.23 interest.
$10,000 loan balance. 7% interest. Payment $200. It will take you 59 months to pay it off. You will pay $1,848.38 interest.
The amount of interest paid over the life of the debt is why you pay off the highest interest debts first. You can run all the scenarios you want but the bottom line is that the high interest on credit cards is throwing your money down the toilet.
Credit card companies love people who max out the cards and make minimum payments. Those people are called cash cows.
Quote:
Originally Posted by Dtjones82
I’ll still net about 1800-2k a week (just don’t show it all on my taxes).
That's a problem. Lenders want verifiable income, not tax evasion. They are much more strict with self-employed people. Much harder to qualify.
Quote:
Originally Posted by rrah
I don't know the source of this $25-40,000, but you likely will owe taxes on that money also. Be prepared to pay them.
Good point. You'll need to pay estimated tax on those windfalls from your business. Probably at least 20% before you use any of that money to pay of any debts. Otherwise you get slammed with a big tax bill and penalties for underpaying. Your estimated tax has to come off the top of that income. You can figure all that out by reading the Form 1040-ES package:
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